Bussiness Law

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1. | | | In actual practice, managers frequently use the:
I. average accounting return method because the information is so readily available.
II. internal rate of return because the results are easy to communicate and understand.
III. discounted payback because of its simplicity.
IV. net present value because it is considered by many to be the best method of analysis. | | | Student Response | Value | A. | I and III only | | B. | II and III only | | C. | I, II, and IV only | 100% | D. | II, III, and IV only | | E. | I, II, III, and IV | | | | | 2. | | | Western Beef Exporters is considering a project that has an NPV of $32,600, an IRR of 15.1 percent, and a payback period of 3.2 years. The required return is 14.5 percent and the required payback period is 3.0 years. Which one of the following statements correctly applies to this project? | | | Student Response | Value | A. | The net present value indicates accept while the internal rate of return indicates reject. | | B. | Payback indicates acceptance. | | C. | The payback decision rule could override the accept decision indicated by the net present value. | 100% | D. | The payback rule will automatically be ignored since both the net present value and the internal rate of return indicate an accept decision. | | E. | The net present value decision rule is the only rule that matters when making the final decision. | | | | | 3. | | | What is the net present value of a project with the following cash flows if the required rate of return is 12 percent?

| | | Student Response | Value | A. | -$1,574.41 | | B. | -$1,208.19 | | C. | -$842.12 | 100% | D. | $729.09 | | E. | $1,311.16 | | | | | 4. | | | A project will produce cash inflows of $3,200 a year for 4 years with a final cash inflow of $5,700 in year 5. The project's initial cost is $9,500. What is the net present

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